Pan-European multilateral trading facility (MTF) Chi-X Europe has partnered with Russell Investments, the US-based investment services and equity indices provider, to launch a new series of European indices.
“This becomes the backbone of our derivatives strategy,” said Alasdair Haynes, CEO of Chi-X Europe.
The two firms claim the new indices will provide targeted exposure by incorporating the most liquid and highly capitalised stocks across Europe to ensure the necessary regional coverage and high investability. Chi-X Europe's traded prices will serve as the underlying price source to provide homogeneous pan-European pricing.
“Europe is one economic region. Investors, intermediaries, brokers and banks see it that way. In five years, you won't be looking at the national indices such as the FTSE, DAX or CAC, it will be about Europe,” said Haynes. “Going through a series of national indices was not the way I saw our derivatives strategy moving. The market wants competition in the European index space.”
Scott Stark, head of Russell Indexes Europe, added, ”Investors are looking for pan-European exposure, not the euro zone with Switzerland and the UK added on. They'd like to see an true pan-European index that is easy to follow and trade against.” Russell Indexes accounted for US$3.9 trillion in benchmarked assets as of December 31, 2009.
The new indices will balance currency exposure and tracking error with number of constituents to appeal to the widest possible audience of equity index users. The two firms have not revealed the number of constituents in the new indices, but confirmed that it will be lower than competing products. The indices will be constructed using Russell Investments' rules-based methodology.
Chi-X Europe will list both futures and options contracts based on the indices in the future. “Once we've launched the index, the next stage will be to get exchange-traded funds on it, as we start to get adoption. It will be a little while before we launch futures, and finally options,” said Haynes.
Turquoise, a rival MTF majority owned by the London Stock Exchange (LSE), recently said that it is still waiting on stock index licences from other European exchanges to enable its Turquoise Derivatives business to offer a full range of pan-European listed derivatives. Due to launch in May, Turquoise Derivatives will initially launch with FTSE index-based instruments, as well as Nordic and Russian futures and options previously offered under the LSE's EDX banner.
Derivatives trading has proven a key driver for a spate of exchange mergers in Q1 2011, with market operators NYSE Euronext and Deutsche Börse emphasising the importance of the sector in their proposed combination, and the LSE Group citing it as a major potential source of synergies and revenue growth in its own takeover, of Canadian market owner TMX.
Market operator BATS Global Markets is expected to receive regulatory approval from the UK's competition body, the Office of Fair Trading, and financial regulator the Financial Services Authority to acquire Chi-X Europe in the next couple of weeks, which it plans to merge with its own MTF, BATS Europe. The merged business will retain two separate displayed order books, although they will both run on BATS technology.
Haynes declined to comment on speculation that he would leave Chi-X Europe following the completion of the merger.